Components of Marketing Channels

CHAPTER 3

NATURE OF DISTRIBUTION CHANNELS

 Set of various interdependent organizations involved in the process of developing a product or
service allotted for use or consumption by the consumer or business user
DISTRIBUTION CHANNEL
Marketing Intermediaries Used
 Results greater efficiency in making goods available to meet its markets
 Innovate the variations of products produced into desired final products
 Plays an important role in matching supply and demand by determining the need and wants
of the customers
Distribution Channels
Conventional Organization:
 Traditional and passive
 Lacked strong leadership, troubled by conflicts, and characterized by poor performance
Vertical Marketing System:
 Designed to challenge conventional distribution channel organization
 Improved performance and efficiency, provided opportunities for stronger leadership, and
maximum customer relationships

Vertical Marketing System

→ Corporate Channel
→ Administrative VMS
→ Contractual VMS
Corporate Channel
 Some corporations develop their own vertical marketing system through undergoing internal
expansion and/or buying other firms
 A firm at a one channel level owns the firms at the next level or owns the entire channel
Administrative VMS
 Channel members informally agree to cooperate with each other
 Coordinates distribution activities through the market and/or economic power of one channel
member or through the shared power of two channel members
Contractual VMS
 Channel members agree by contract to cooperate with each other
 Members achieve some of the advantages of corporate integration while retaining some of
the flexibility of a traditional channel system
Strategic Channel Alliances
One firm’s marketing channel is used to sell another firm’s products
 Corporate System
 Vertical Marketing System
 Contractual System
Corporate Systems
 Combinations of successiveness stages of production and distribution under a single
ownership
e. g. Forward Integration – a producer might own the intermediary at the next level down in the channel
Vertical Marketing System
  Traditional marketing channels represent a loosely knit network of independent procedures
and intermediaries brought together to distribute goods and services
 New channel arrangements emerged for the purpose of increasing control in performing
channel functions and achieving greater marketing efficiency and effectiveness
Contractual System
 Independent production and distribution firms integrate their efforts in a contractual basis to
obtain greater functional economics and marketing impact that they could achieve alone

▪ Vertical Marketing System and International Strategic Alliances

▪ Gray Market
Vertical Marketing System and International Strategic Alliances
 Involves procedure, wholesaler, and retail performing marketing activities, as a unified system
 These systems are planned to the extent to which functions are integrated throughout the
system
Gray Market
 Practice of distributing products through distribution channels that is not authorized by the
marketer of the product
 In international marketing, the process is often referred to as parallel importing or the use of
gray market tactics across international borders

FUNCTIONS OF DISTRIBUTION CHANNELS

Types of Wholesalers
▪ Merchant
▪ Full-service
▪ Brokers and Agents
WHOLESALERS
 Independently – owned businesses that take title to the products they handle
TYPES:
 Full-service wholesalers
 Limited service wholesalers
 Provide complete service like carrying stock, using a salesforce, offering credit, making
deliveries, and providing management assistance
1. Merchant Wholesalers
2. Full-service
Wholesalers
Types of Wholesaler
Merchant wholesalers who sell to:
i. Retailers and provide a full range of services;
ii. Producers rather than retailers (Industrial Distributors); and
iii. Limited-service wholesalers – offer fewer services to customers and suppliers
WHOLESALERS
i. Brokers
 bring buyers and sellers together and assist them in negotiating and closing sales
ii. Agents
 engaged in presenting buyers and sellers on a more permanent basis
3. Brokers and Agents

TYPES OF MIDDLEMEN
Types of Intermediaries
Take title to merchandise and resell it
Never actually own the products, but they do arrange the transfer of title
1. Merchant Middlemen
2. Agent Middlemen
Classification of Middlemen
Merchant Middlemen
 Take title to the goods they handle
e. g. wholesalers and retailers
(wholesaler is a merchant middleman because of the factors which are delivery and payment)
Agent Middlemen
 Do not take title to the goods but actually assist in the transfer of the title
e. g. real estate brokers
(real estate broker involved that there in so payment upon delivery but after the goods are sold)

NUMBER OF MIDDLEMEN
Intensive Distribution
 Convenience is more important than price, prestige or product information
 Refers to stocking the products in as many outlets as possible
 Means developing as many service outlets as possible such that the service is widely available
throughout the market
Exclusive Distribution
 A vendor has exclusive rights to distribute a product in a specific geographic area
 Authorizing a limited number of dealers to exclusively distribute a company’s products in their
territories
 Offers the advantages to greater control over the service levels provided by the resellers
Selective Distribution
 The product for which a customer will shop around
 Refers to use of more than one where not all middlemen who are willing to carry’s the
company’s product
 Use of more than a few intermediaries but less than the number used in intensive distribution